Wednesday November 24, 2004 - 11:03:36 GMT
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INVESTICA Ltd - www.investica.co.uk
Long-term fears damage dollar
Overall dollar confidence will remain very fragile. There will be serious concerns over central bank reserves rebalancing which would involve further dollar selling and there will also be an increased risk of dollar selling by longer-term investors and companies. The central banks may, however, show some concerns over unstable markets and there are also a very high number of short dollar positions. Overall, there is a high risk of a near-term Euro push to 1.32.
The dollar was unable to push back through 1.2960 against the Euro and suffered significant losses during Tuesday. The US currency weakened to a low of 1.3105 before a marginal recovery and was hovering close to the 1.31 level in early Europe on Wednesday before sliding to 1.3150.
The retreat was triggered in part by reports that the Russian central bank would increase the proportion of reserves held in Euros. This would probably involve a reduction in dollar holdings, especially in the medium term, although other currencies may be sold initially. The wider central bank reserves policies will remain a very important longer-term market focus given the substantial increase in dollar reserves held overseas over the past 12 months. If there is significant dollar selling, the US currency will be vulnerable to sustained downward pressure which could push it sharply lower.
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